What are the risks?

Published Tuesday 8 April 2008 12:00 am

When it comes to extended supply chains, risk is the name of the game.

Boeing’s 787 Dreamliner may have wowed the aerospace sector with its sleek looks and impressive projections on fuel efficiency, but manufacturing delays have dogged the project, holding back the roll out of the new aircraft by 10 months. And according to Boeing’s chief executive, Scott Carson, the company has continued ‘to be challenged by start-up issues in our factory and in our extended global supply-chain’.

Boeing has taken an adventurous sourcing strategy with the Dreamliner, moving away from local sourcing and outsourcing 70 per cent of the plane’s components. Assembly is in Seattle, which places a heavy emphasis on the timely arrival of parts from distant locations – greatly increasing exposure to risk and uncertainty. Despite the problems, Boeing still plans to deliver 109 Dreamliners by the end of 2009, a reduction of only three from its original plans.

Clearly, buyers need to be fully aware of the risks that distant sourcing brings, as disruption of supply can have cost impacts on the build programme and, to some degree, on the reputation of a company. Robin Jackson, CEO of procurement consultants, ADR International, highlighted recently that a good risk management strategy has several components. It must identify risks, and the probability of those risks occurring, for the entire life cycle of every product or service the company provides, from initial R&D through commercialisation. It must be able to predict the financial impact that a supply disruption can cause. It must offer strategies that can mitigate the effects of any disruption of supplies – with costs and benefits associated with each different alternative. But importantly, it must delve deeper into the supply chain than the first tier of suppliers.

It seems many organisations fail to recognise risk throughout all tiers of the supply chain.

If you are involved in managing risk in the supply chain and would like to be considered as a participant for our next roundtable discussion event on Supply Chain Risk Management (Tuesday 13th May – organised in association with Oracle), please email Johanna.parsons@centaur.co.uk